The plant has accumulated savings of $80,000 to acquire a new machine for the Ma
ID: 1216382 • Letter: T
Question
The plant has accumulated savings of $80,000 to acquire a new machine for the Manufacture Department. The new machine costs $80,000. The Straight line depreciation method is used buy this plant in all its equipments. The income tax rate is 0.35. The new equipment will save $35,000 each year and its economic life is 5 years. The salvage value is $10,000. Does the acquisition of this new machine satisfy the 8% minimum rate? Compute the present worth after tax cash flow.
a. -$18,693
b. -$80,000
c.$66,550
d. $37,204
Explanation / Answer
Depreciation for machine each year = $80,000/5 = $16,000
Present worth after tax = $64,000 - $22400(64,000*5) = $41,600
Present worth before tax = $64,000
So answer is d.